Market Overview

FDA Says It Will Cut Nicotine In Cigarettes To 'Non-Addictive Levels'

FDA Says It Will Cut Nicotine In Cigarettes To 'Non-Addictive Levels'
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Cigarette manufacturers plummeted Friday on news that the U.S. Food and Drug Administration would take steps to limit cigarette nicotine to non-addictive levels.

“The overwhelming amount of death and disease attributable to tobacco is caused by addiction to cigarettes – the only legal consumer product that, when used as intended, will kill half of all long-term users,” FDA Commissioner Scott Gottlieb said in a press release. “Unless we change course, 5.6 million young people alive today will die prematurely later in life from tobacco use. Envisioning a world where cigarettes would no longer create or sustain addiction, and where adults who still need or want nicotine could get it from alternative and less harmful sources, needs to be the cornerstone of our efforts – and we believe it’s vital that we pursue this common ground.”

In The Details

The FDA will open public dialogue on the possibility of implementing more restrictive regulations on tobacco products and will solicit input on related public health issues, such as the marketing of flavored products enticing to children.

“Lowering nicotine levels could decrease the likelihood that future generations become addicted to cigarettes and allow more currently addicted smokers to quit,” the press release read.

The measure is an extension of the Family Smoking Prevention and Tobacco Control Act meant to protect children from negative health effects.

To ease the burden on manufacturers and allow more time to develop safer products, the FDA is extending the timeline to submit review applications for newly regulated products, such as cigars, pipe tobacco and hookah tobacco, to August 8, 2021. Applications for non-combustible products will be due in August 8, 2022.

Not All Bad?

Some consider the news an ultimate positive.

"We see this as a positive for future profit growth as it could lead to positive volume growth in vapour and also more favourable tax treatment than seen currently," a Jefferies analysts wrote in a mid-morning note. "Key now will be who is positioned to take advantage of this shift."

Shares recovered slightly following the analysis.

At time of publication, British American Tobacco PLC (ADR) (NYSE: BTI) was down 10.4 percent, Altria Group Inc (NYSE: MO) 11.2 percent, Philip Morris International Inc. (NYSE: PM) 3.5 percent and Vector Group Ltd (NYSE: VGR) 3.1 percent.

Latest Ratings for BTI

May 2018PiperJaffrayDowngradesOverweightNeutral
Sep 2017Cowen & Co.UpgradesMarket PerformOutperform
Aug 2017Goldman SachsReinstatesNeutral

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